Wells Fargo & Company is a diversified financial services company, ranking as the seventh largest bank holding company in the United States as of 2000. The company’s community banking operations serve nearly 11 million customers through more than 3,000 bank branches (or what the company calls “stores”) in 23 states, most of which are in the western United States—Ohio being the easternmost state of operation. Wells Fargo is the nation’s number one home mortgage lender, with more than 1,200 “stores” serving all 50 states. The company is one of the top “cross-sellers” of financial services in the country, offering credit cards, personal loans, wealth management services, and insurance (the firm is the nation’s second largest crop insurer). Business-oriented services include commercial banking services, lending, investment banking, venture capital, and equipment leasing. Wells Fargo is one of the leaders in the realm of online banking, having become the first major financial services firm to offer Internet banking back in 1995.

The Wells Fargo of the early 21st century is the product of more than 1,500 mergers over a nearly 150-year history. The bank has three main predecessors, however. In 1998 Norwest Corporation acquired the original Wells Fargo & Company and adopted the acquiree’s name. Norwest’s history originates in 1929 when several Midwest banks joined forces within a banking cooperative called Northwest Bancorporation, which was known as Banco. During the 1980s, Banco diversified into other areas of financial services, its affiliates reorganized, and Banco changed its name in 1983 to Norwest. Fifteen years later it acquired the original Wells Fargo. Wells traces its origins to a banking and express business formed in 1852 to exploit the economic opportunities created by the California gold rush. The banking operation split off from the express business in 1905. Throughout its colorful history, the company provided innovative services to its customers and demonstrated an ability to weather economic conditions that ruined its competitors. In 1996 Wells Fargo acquired Los Angeles-based First Interstate Bancorp in a major takeover. First Interstate first emerged as a separate company in 1957 as a spinoff of the banking interests of Transamerica Corporation called Firstamerica Bancorporation. Four years later the company was renamed Western Bancorporation, and in 1981 it adopted the First Interstate name. As it traced its origins to Transamerica, First Interstate had a lineage dating to 1904, when A.P. Giannini opened the Bank of Italy in San Francisco.

Norwest’s Early History

During the generally prosperous 1920s, the nation’s agricultural sector did not share in the good times. Many smaller banks that had overextended credit to farmers ran into serious trouble. In the Upper Midwest alone, 1,500 banks became insolvent from 1920 to 1929. It was with this backdrop that in early 1929, just months before the stock market crash, two banking associations were formed in the Twin Cities of Minnesota: Northwest Bancorporation and the First Bank Stock (later known as First Bank System Inc. and then U.S. Bancorp). The Northwest cooperative, known more simply as Banco, initially included Northwestern National Bank of Minneapolis and several other Midwestern banks. Banco acquired stock in the affiliated banks and served as a mutual protection association for the beleaguered banks. Another 90 banks joined Banco in its first year of operation and by 1932 there were 139 affiliates.

During the Great Depression, numerous additional banks failed, another 700 in the Upper Midwest by 1932. None of the Banco members went under—and no depositor lost any savings—because the group was able to move liquidity around the system and in some cases, inject new capital into troubled banks. The number of members did decline, however, as some units in the group merged while others were sold off. Membership fell to 83 by 1940, then to 70 by 1952.

One of Banco’s strategic advantages in the long run was its ability to operate in multiple states. The McFadden Act of 1927 had prohibited banks from operating branches across state lines. Banco was one of three major banks (the others being First Bank System and First Interstate Bancorp) that was allowed to conduct interstate banking under a grandfather clause in the 1927 act. This advantage was tempered somewhat by the emergence of bank holding companies in the late 1960s, but under the holding company arrangement, a subsidiary bank in one state was a separate entity from a subsidiary bank in another state. Prior to the 1970s, the affiliated members of Banco were largely autonomous. But during that decade, Banco began adopting a more unified structure in terms of systemwide planning, marketing, data processing, funds management, and loan syndication. By the end of the decade, Banco consisted of 85 affiliates in seven states: Minnesota, Wisconsin, Iowa, Nebraska, South Dakota, North Dakota, and Montana. Total assets had reached $11 billion, ranking Banco as the 20th largest bank in the United States. Banco was also active on the international banking scene through its lead bank, Northwestern National, which controlled Canadian American Bank, a merchant bank with offices in Winnipeg, London, Nassau, and Luxembourg.

Declining Fortunes, Then Turnaround: 1980s

Banco was beset by a series of major setbacks in the early 1980s. The troubles actually began in late 1979 when Richard H. Vaughan, the president and CEO, died by electrocution when he touched an electrical wire that had fallen during a storm. This set off a management crisis. Chester Lind stepped in as a caretaker leader until a more permanent successor could be found. In October 1981 John W. Morrison was named chairman and CEO. The new leader began centralizing the still loosely knit confederation. In 1982 the 80-odd affiliates began to be grouped into eight regions reporting to a corporate vice-chairman. Plans were also laid to unify all the affiliates and Banco itself under a new name. The change occurred in 1983, when Northwest Bancorporation became Norwest Corporation. Tellingly, the new name did not include “bank” or some variant thereof because Morrison aimed to create a diversified financial services company. To that end he had engineered the acquisition of Dial Corporation in September 1982 for $252 million. Based in Des Moines, Iowa, Dial had more than 460 offices in 38 states offering consumer loans for everything from cars to sailboats. It was considered one of the top consumer finance firms in the country and had a $1 billion consumer loan operation. Dial was renamed Norwest Financial Services Inc. in 1983.

While these restructuring initiatives were being carried out, the bank suffered another blow during the 1982 Thanksgiving weekend when the downtown Minneapolis headquarters burned to the ground. It would be six years before Norwest would be able to move into its new quarters at the Norwest Center, during which time the corporate staff was scattered around 26 different sites in the city, leading to numerous logistical difficulties. Meanwhile, with the farm economy going into a tailspin starting in 1981, Norwest began feeling the effects because it had a heavy farm loan portfolio—$1.2 billion, or seven percent of its overall loan portfolio. Norwest had another $1.2 billion in loans in foreign markets, which caused additional problems in the early 1980s as Norwest, like most U.S. banks, had made many bad loans overseas. As a result, Norwest saw its nonperforming loans increase 500 percent from 1983 to 1984, to more than $500 million. Further trouble came from the bank’s mortgage unit, Norwest Mortgage Inc., which had been quickly built into the second largest holder of mortgages in the United States. In the summer of 1984 Norwest Mortgage lost nearly $100 million from an unsuccessful effort to hedge its mounting interest-rate risk on adjustable-rate mortgages. The loan losses and the mortgage debacle led to a drop in net income from $125.2 million in 1983 to $69.5 million in 1984.

In August 1984 the head of Norwest Mortgage was fired because of the hedging losses. By early 1995 substantial portions of Norwest Mortgage were divested, including operations involved in servicing mortgages and buying mortgages from other lenders for resale. The unit now focused strictly on originating mortgages. In the wake of Norwest’s poor performance in 1984, Morrison resigned and was replaced by Lloyd P. Johnson, former vice-chairman of Security Pacific Corp. Johnson soon brought on board Richard M. Kovacevich, who was hired away from Citicorp to become vice-chairman and CEO of Norwest’s banking group in early 1996 (he was named to the additional posts of president and COO of Norwest Corp. in January 1989). The new managers began slashing away at Norwest’s bloated bureaucracy. They drastically curtailed the bank’s agricultural and international loan portfolios, the former being reduced to $400 million by early 1989, the latter to $10 million. By December 1988, the nonperforming loan total stood at just $150 million. To help prevent future calamities, Norwest instituted tighter lending criteria.

Company Perspectives:

Wells Fargo was founded on the American frontier 148 years ago to satisfy a fundamental human need—to connect one customer to another and one market to another by transporting goods, services and funds fast and securely across great distances. We’re still doing it today. Our vision—satisfying all our customers’ financial needs—is built on that same process—connecting. That’s the “next stage” of the new Wells Fargo.

On the banking side, Kovacevich continued the process of standardizing the operating methods of the various Norwest banks, increased marketing efforts, and expanded the services offered. He also began seeking acquisitions, particularly aiming to bolster Norwest’s presence in key cities; in 1986, for example, Norwest acquired Toy National Bank of Sioux City, Iowa, which had assets of $145 million. At the same time came the pruning of some rural operations, including eight banks in southern Minnesota and seven branches in South Dakota. Later in the decade, opportunities to expand outside the group’s traditional seven-state banking region began to arise as the barriers to interstate banking began to be dismantled. In 1988 Norwest entered rapidly growing Arizona for the first time through the purchase of a small bank near Phoenix. Norwest ended the 1980s fully recovered from its early-decade travails and ranking as one of the nation’s most profitable regional banking companies and the 30th largest bank overall, with assets in excess of $25 billion. Net income stood at $237 million for 1989.

Norwest’s Acquisitive 1990s

Acquisitions continued in the early 1990s. By early 1991 Norwest had 291 bank branches in 11 states, having moved into Indiana, Illinois, and Wyoming. In April 1990 Norwest paid $173 million for Sheboygan-based First Interstate of Wisconsin, a $2 billion concern. Also acquired was a troubled S&L in Norwest’s home state, First Minnesota Savings Bank. The largest purchase yet came in 1992 when Norwest paid about $420 million in stock for United Banks of Colorado Inc., a bank based in Denver with total assets of $6.3 billion. Norwest Financial grew through acquisition as well, with the 1992 purchase of Trans Canada Credit, the second largest consumer finance firm in Canada. By the end of 1992 Norwest had total assets of $44.56 billion, more than double the figure of 1988. At the beginning of 1993, Johnson handed over his CEO position to Kovacevich.

Expansion of the banking operation into New Mexico and Texas came in 1993 through the acquisition of First United Bank Group Inc. of Albuquerque for about $490 million. First United had assets of $3.8 billion. Between January 1994 and June 1995, Norwest made an additional 25 acquisitions, including several in Texas, making it the most active acquirer among bank holding companies. In 1995 Norwest Mortgage became the nation’s leading originator of home mortgages following the acquisition of Directors Mortgage Loan Corp., a Riverside, California-based lender with a residential mortgage portfolio of $13.1 billion. The following year Norwest Mortgage became the biggest home-mortgage servicer as well through the $600 million purchase of the bulk of the mortgage unit of the Prudential Insurance Co. of America. Meanwhile, in May 1996 Norwest Financial completed the purchase of $1 billion-asset ITT Island Finance, a consumer finance company based in San Juan, Puerto Rico. About one-quarter of Norwest Corp.’s earnings were generated by Norwest Financial in the mid-1990s, with another 12 percent coming from Norwest Mortgage. The traditional community banking operations—which extended to 16 states by 1995—accounted for only about 37 percent of the total. By year-end 1995, Norwest had total assets of $72.13 billion, making it the 13th largest bank holding company in the nation. Net income, which was nearing the $1 billion mark, had grown at a compounded annual rate of 25 percent over the previous eight years.

Key Dates:

1852:

Henry Wells and William G. Fargo form Wells, Fargo & Company to provide express and banking services to California.

1860:

Wells Fargo gains control of Overland Mail Company, leading to operation of the western portion of the Pony Express.

One of the keys to Norwest’s success in the retail banking sector following the arrival of Kovacevich was the emphasis on relationship banking. His focus was on smaller customers, checking account depositors and small businesses, and he aimed to build relationships with them that would lead to cross-selling of other financial services—an auto loan, a mortgage, insurance, a mutual fund, and so on. To do so required the maintenance of an extensive network of bank branches staffed by well-trained tellers and bankers. This ran counter to the mid-1990s trend in the industry away from expensive branch banking and toward impersonal ATMs and Internet banking—the latter of course making cross-selling difficult. It was also in this cross-selling that the main units of Norwest—the retail bank, the finance company, and the mortgage company—fit and worked together. Another key to Norwest’s success was its focus on these three key areas; although it did have other operations, such as a successful venture capital unit, the bank was not moving into such areas as investment banking, unlike numerous other banks, and it was not attempting to compete with large New York securities firms.

By the end of 1997, Norwest had become the 11th largest bank in the United States with total assets of $88.54 billion. With bank branches in 16 states, Norwest had the largest contiguous bank franchise in the nation. Its strongest markets were in Minnesota, Texas, Colorado, and Iowa. Having only entered the Texas market a few years previous, Norwest had built up a $10 billion presence there by buying 33 bank and trust outfits. Norwest Mortgage was national in scope, while Norwest Financial covered all 50 states, along with additional operations in Canada, the Caribbean, and Central America. Net income had reached $1.35 billion by 1997. Norwest had grown into this position of strength without completing any of the blockbuster mergers that shook up the banking industry in the 1990s, but in June 1998 the bank joined in the consolidation frenzy when it agreed to acquire Wells Fargo & Company.

Wells Fargo in the 19th Century: Banking, Express, Stagecoaches

Soon after gold was discovered in early 1848 at Sutter’s Mill near Comona, California, financiers and entrepreneurs from all over North America and the world flocked to California, drawn by the promise of huge profits. Vermont native Henry Wells and New Yorker William G. Fargo watched the California boom economy with keen interest. Before either Wells or Fargo could pursue opportunities offered in the West, however, they had business to attend to in the East. Wells, founder of Wells and Company, and Fargo, a partner in Livingston, Fargo and Company, were major figures in the young and fiercely competitive express industry. In 1849 a new rival, John Butterfield, founder of Butterfield, Wasson & Company, entered the express business. Butterfield, Wells, and Fargo soon realized that their competition was destructive and wasteful, and in 1850 they decided to join forces to form the American Express Company.

Soon after the new company was formed, Wells, the first president of American Express, and Fargo, its vice-president, proposed expanding their business to California. Fearing that American Express’s most powerful rival, Adams and Company (later renamed Adams Express Company), would acquire a monopoly in the West, the majority of the American Express Company’s directors balked. Undaunted, Wells and Fargo decided to start their own business while continuing to fulfill their responsibilities as officers and directors of American Express.

On March 18, 1852, they organized Wells, Fargo & Company, a joint-stock association with an initial capitalization of $300,000, to provide express and banking services to California. Financier Edwin B. Morgan was appointed Wells Fargo’s first president. The company opened its first office, in San Francisco, in July 1852. The immediate challenge facing Morgan and Danforth N. Barney, who became president in 1853, was to establish the company in two highly competitive fields under conditions of rapid growth and unpredictable change. At the time, California regulated neither the banking nor the express industry, so both fields were wide open. Anyone with a wagon and team of horses could open an express company and all it took to open a bank was a safe and a room to keep it in. Because of its late entry into the California market, Wells Fargo faced well established competition in both fields.

From the beginning, the fledgling company offered diverse and mutually supportive services: general forwarding and commissions; buying and selling of gold dust, bullion, and specie (or coin); and freight service between New York and California. Under Morgan’s and Barney’s direction, express and banking offices were quickly established in key communities bordering the gold fields and a network of freight and messenger routes was soon in place throughout California. Barney’s policy of subcontracting express services to established companies, rather than duplicating existing services, was a key factor in Wells Fargo’s early success.

In 1855, Wells Fargo faced its first crisis when the California banking system collapsed as a result of overspeculation. A run on Page, Bacon & Company, a San Francisco bank, began when the collapse of its St. Louis, Missouri, parent was made public. The run soon spread to other major financial institutions, all of which, including Wells Fargo, were forced to close their doors. The following Tuesday Wells Fargo reopened in sound condition, despite a loss of one-third of its net worth. Wells Fargo was one of the few financial and express companies to survive the panic, partly because it kept sufficient assets on hand to meet customers’ demands rather than transferring all its assets to New York.

Surviving the Panic of 1855 gave Wells Fargo two advantages. First, it faced virtually no competition in the banking and express business in California after the crisis; second, Wells Fargo attained a reputation for dependability and soundness. From 1855 through 1866, Wells Fargo expanded rapidly, becoming the West’s all-purpose business, communications, and transportation agent. Under Barney’s direction, the company developed its own stagecoach business, helped start and then took over the Overland Mail Company, and participated in the Pony Express. This period culminated with the “grand consolidation” of 1866 when Wells Fargo consolidated under its own name the ownership and operation of the entire overland mail route from the Missouri River to the Pacific Ocean and many stagecoach lines in the western states.

In its early days, Wells Fargo participated in the staging business to support its banking and express businesses. But the character of Wells Fargo’s participation changed when it helped start the Overland Mail Company. Overland Mail was organized in 1857 by men with substantial interests in four of the leading express companies—American Express, United States Express, Adams Express, and Wells Fargo. John Butterfield, the third founder of American Express, was made Overland Mail’s president. In 1858, Overland Mail was awarded a government contract to carry the U.S. mail over the southern overland route from St. Louis to California. From the beginning, Wells Fargo was Overland Mail’s banker and primary lender.

In 1859 there was a crisis when Congress failed to pass the annual post office appropriation bill and left the post office with no way to pay for the Overland Mail Company’s services. As Overland Mail’s indebtedness to Wells Fargo climbed, Wells Fargo became increasingly disenchanted with Butterfield’s management strategy. In March 1860 Wells Fargo threatened to foreclose. As a compromise. Butterfield resigned as president of Overland Mail and control of the company passed to Wells Fargo. Wells Fargo, however, did not acquire ownership of the company until the consolidation of 1866.

Wells Fargo’s involvement in Overland Mail led to its participation in the Pony Express in the last six of the express’s 18 months of existence. Russell, Majors & Waddell launched the privately owned and operated Pony Express. By the end of 1860, the Pony Express was in deep financial trouble; its fees did not cover its costs and, without government subsidies and lucrative mail contracts, it could not make up the difference. After Overland Mail, by then controlled by Wells Fargo, was awarded a $1 million government contract in early 1861 to provide daily mail service over a central route (the Civil War had forced the discontinuation of the southern line), Wells Fargo took over the western portion of the Pony Express route from Salt Lake City to San Francisco. Russell, Majors & Waddell continued to operate the eastern leg from Salt Lake City to St. Joseph, Missouri, under subcontract.

The Pony Express ended when transcontinental telegraph lines were completed in late 1861. Overland mail and express services were continued, however, by the coordinated efforts of several companies. From 1862 to 1865 Wells Fargo operated a private express line between San Francisco and Virginia City, Nevada; Overland Mail stagecoaches covered the route from Carson City, Nevada, to Salt Lake City; and Ben Holladay, who had acquired Russell, Majors & Waddell, ran a stagecoach line from Salt Lake City to Missouri.

By 1866, Holladay had built a staging empire with lines in eight western states and was challenging Wells Fargo’s supremacy in the West. A showdown between the two transportation giants in late 1866 resulted in Wells Fargo’s purchase of Holladay’s operations. The “grand consolidation” spawned a new enterprise that operated under the Wells Fargo name and combined the Wells Fargo, Holladay, and Overland Mail lines and became the undisputed stagecoach leader. Barney resigned as president of Wells Fargo to devote more time to his own business, the United States Express Company; Louis McLane, Wells Fargo’s general manager in California, replaced him.

The Wells Fargo stagecoach empire was short lived. McLane had reached an agreement with a railroad group that failed. Although the Central Pacific Railroad, already operating over the Sierra Mountains to Reno, Nevada, carried Wells Fargo’s express, the company did not have an exclusive contract. Moreover, the Union Pacific Railroad was encroaching on the territory served by Wells Fargo stagelines. Ashbel H. Barney, Dan-forth Barney’s brother and cofounder of United States Express Company, replaced McLane as president in 1868. The transcontinental railroad was completed in the following year, causing the stage business to dwindle and Wells Fargo’s stock to fall.

Central Pacific promoters, led by Lloyd Tevis, organized the Pacific Express Company to compete with Wells Fargo. The Tevis group also started buying up Wells Fargo stock at its sharply reduced price. In October 1869 William Fargo, his brother Charles, and Ashbel Barney traveled to Omaha, Nebraska, to confer with Tevis and his associates. There Wells Fargo agreed to buy the Pacific Express Company at a much-inflated price and received exclusive express rights for ten years on the Central Pacific Railroad and a much needed infusion of capital. All of this, however, came at a price: control of Wells Fargo shifted to Tevis.

Ashbel Barney resigned in 1870 and was replaced as president by William Fargo. In 1872 William Fargo also resigned to devote full time to his duties as president of American Express. Lloyd Tevis replaced Fargo as president of Wells Fargo, and the company expanded rapidly under his management. The number of banking and express offices grew from 436 in 1871 to 3,500 at the turn of the century. During this period, Wells Fargo also established the first transcontinental express line, using more than a dozen railroads. The company first gained access to the lucrative East Coast markets beginning in 1888; successfully promoted the use of refrigerated freight cars in California; had opened branch banks in Virginia City, Carson City, and Salt Lake City by 1876; and expanded its express services to Japan, Australia, Hong Kong, South America, Mexico, and Europe. In 1885 Wells Fargo also began selling money orders.

Early 20th Century: Independently Run Wells Fargo Bank

In 1905 Wells Fargo separated its banking and express operations. Edward H. Harriman, a prominent financier and dominant figure in the Southern Pacific and Union Pacific railroads, had gained control of Wells Fargo. Harriman reached an agreement with Isaias W. Hellman, a Los Angeles banker, to merge Wells Fargo’s bank with the Nevada National Bank, founded in 1875 by the Nevada silver moguls James G. Fair, James Flood, John Mackay, and William O’Brien to form the Wells Fargo Nevada National Bank.

Wells Fargo & Company Express had moved to New York City in 1904. In 1918 the government forced Wells Fargo Express to consolidate its domestic operations with those of the other major express companies. This wartime measure resulted in the formation of American Railway Express (later Railway Express Agency). Wells Fargo continued some overseas express operations until the 1960s.

The two years following the merger tested the newly reorganized bank’s, and Hellman’s, capacities. In April 1906 the San Francisco earthquake and fire destroyed most of the city’s business district, including the Wells Fargo Nevada National Bank building. The bank’s vaults and credit were left intact, however, and the bank committed its resources to restoring San Francisco. Money flowed into San Francisco from around the country to support rapid reconstruction of the city. As a result, the bank’s deposits increased dramatically, from $16 million to $35 million in 18 months.

The Panic of 1907, begun in New York in October, followed on the heels of this frenetic reconstruction period. The stock market had crashed in March. Several New York banks, deeply involved in efforts to manipulate the market after the crash, experienced a run when speculators were unable to pay for stock they had purchased. The run quickly spread to other New York banks, which were forced to suspend payment, and then to Chicago and the rest of the country. Wells Fargo lost $1 million in deposits weekly for six weeks in a row. The years following the panic were committed to a slow and painstaking recovery.

In 1920, Hellman was very briefly succeeded as president by his son, I.W. Hellman II, who was followed by Frederick L. Lipman. Lipman’s management strategy included both expansion and the conservative banking practices of his predecessors. In late 1923, Wells Fargo Nevada National Bank merged with the Union Trust Company, founded in 1893 by I.W. Hellman, to form the Wells Fargo Bank & Union Trust Company. The bank prospered during the 1920s and Lipman’s careful reinvestment of the bank’s earnings placed the bank in a good position to survive the Great Depression. Following the collapse of the banking system in 1933, the company was able to extend immediate and substantial help to its troubled correspondents.

The war years were prosperous and uneventful for Wells Fargo. In the 1950s, Wells Fargo President I.W. Hellman III, grandson of Isaias Hellman, began a modest expansion program, acquiring two San Francisco Bay-area banks and opening a small branch network around San Francisco. In 1954 the name of the bank was shortened to Wells Fargo Bank, to capitalize on frontier imagery and in preparation for further expansion.

1960s: Expanding Overseas and in California

In 1960, Hellman engineered the merger of Wells Fargo Bank with American Trust Company, a large northern California retail-banking system and the second oldest financial institution in California, to form the Wells Fargo Bank American Trust Company, renamed Wells Fargo Bank again in 1962. This merger of California’s two oldest banks created the 11th largest banking institution in the United States. Following the merger, Wells Fargo’s involvement in international banking greatly accelerated. The company opened a Tokyo representative office and, eventually, additional branch offices in Seoul, Hong Kong, and Nassau, as well as representative offices in Mexico City, Sao Paulo, Caracas, Buenos Aires, and Singapore.

In November 1966, Wells Fargo’s board of directors elected Richard P. Cooley president and CEO. At 42, Cooley was one of the youngest men to head a major bank. Stephen Chase, who planned to retire in January 1968, became chairman. Cooley’s rise to the top had been a quick one. From a branch manager in 1960 he rose to become a senior vice-president in 1964, an executive vice-president in 1965, and in April 1966 a director of the company. A year later Cooley enticed Ernest C. Arbuckle, the former dean of Stanford’s business school, to join Wells Fargo’s board as chairman.

In 1967 Wells Fargo, together with three other California banks, introduced a Master Charge card (now MasterCard) to its customers as part of its plan to challenge Bank of America in the consumer lending business. Initially 30,000 merchants participated in the plan. Credit cards would later prove a particularly profitable operation.

Cooley’s early strategic initiatives were in the direction of making Wells Fargo’s branch network statewide. The Federal Reserve had blocked the bank’s earlier attempts to acquire an established bank in southern California. As a result, Wells Fargo had to build its own branch system. This expansion was costly and depressed the bank’s earnings in the later 1960s. In 1968 Wells Fargo changed from a state to a federal banking charter, in part so that it could set up subsidiaries for businesses such as equipment leasing and credit cards rather than having to create special divisions within the bank. The charter conversion was completed August 15, 1968, with the bank renamed Wells Fargo Bank, N. A. The bank successfully completed a number of acquisitions during 1968 as well. The Bank of Pasadena, First National Bank of Azusa, Azusa Valley Savings Bank, and Sonoma Mortgage Corporation were all integrated into Wells Fargo’s operations.

In 1969 Wells Fargo formed a holding company—Wells Fargo & Company—and purchased the rights to its own name from the American Express Corporation. Although the bank always had the right to use the name for banking, American Express had retained the right to use it for other financial services. Wells Fargo could now use its name in any area of financial services it chose (except the armored car trade—those rights had been sold to another company two years earlier).

1970s: Rapid Growth

Between 1970 and 1975 Wells Fargo’s domestic profits rose faster than those of any other U.S. bank. Wells Fargo’s loans to businesses increased dramatically after 1971. To meet the demand for credit, the bank frequently borrowed short-term from the Federal Reserve to lend at higher rates of interest to businesses and individuals.

In 1973 a tighter monetary policy made this arrangement less profitable, but Wells Fargo saw an opportunity in the new interest limits on passbook savings. When the allowable rate increased to 5 percent, Wells Fargo was the first to begin paying the higher rate. The bank attracted many new customers as a result, and within two years its market share of the retail savings trade increased more than two points, a substantial increase in California’s competitive banking climate. With its increased deposits, Wells Fargo was able to reduce its borrowings from the Federal Reserve, and the one-half percent premium it paid for deposits was more than made up for by the savings in interest payments. In 1975 the rest of the California banks instituted a 5 percent passbook savings rate, but they failed to recapture their market share.

In 1973, the bank made a number of key policy changes. Wells Fargo decided to go after the medium-sized corporate and consumer loan businesses, where interest rates were higher. Slowly Wells Fargo eliminated its excess debt, and by 1974 its balance sheet showed a much healthier bank. Under Carl Reichardt, who later became president of the bank, Wells Fargo’s real estate lending bolstered the bottom line. The bank focused on California’s flourishing home and apartment mortgage business and left risky commercial developments to other banks.

While Wells Fargo’s domestic operations were making it the envy of competitors in the early 1970s, its international operations were less secure. The bank’s 25 percent holding in Allge-meine Deutsche Credit-Anstalt, a West German bank, cost Wells Fargo $4 million due to bad real estate loans. Another joint banking venture, the Western American Bank, which was formed in London in 1968 with several other American banks, was hard hit by the recession of 1974 and failed. Unfavorable exchange rates hit Wells Fargo for another $2 million in 1975. In response, the bank slowed its overseas expansion program and concentrated on developing overseas branches of its own rather than tying itself to the fortunes of other banks.

Wells Fargo’s investment services became a leader during the late 1970s. According to Institutional Investor, Wells Fargo garnered more new accounts from the 350 largest pension funds between 1975 and 1980 than any other money manager. The bank’s aggressive marketing of its services included seminars explaining modern portfolio theory. Wells Fargo’s early success, particularly with indexing—weighting investments to match the weightings of the Standard and Poor’s 500—brought many new clients aboard.

By the end of the 1970s Wells Fargo’s overall growth had slowed somewhat. Earnings were only up 12 percent in 1979 compared with an average of 19 percent between 1973 and 1978. In 1980 Richard Cooley, now chairman of the holding company, told Fortune, “It’s time to slow down. The last five years have created too great a strain on our capital, liquidity, and people.”

1980s: Concentrating on California

In 1981 the banking community was shocked by the news of a $21.3 million embezzlement scheme by a Wells Fargo employee, one of the largest embezzlements ever. L. Ben Lewis, an operations officer at Wells Fargo’s Beverly Drive branch, pleaded guilty to the charges. Lewis had routinely written phony debit and credit receipts to pad the accounts of his cronies and received a $300,000 cut in return.

The early 1980s saw a sharp decline in Wells Fargo’s performance. Richard Cooley announced the bank’s plan to scale down its operations overseas and concentrate on the California market. In January 1983, Carl Reichardt became chairman and CEO of the holding company and of Wells Fargo Bank. Cooley, who had led the bank since the late 1960s, left to revive a troubled rival. Reichardt relentlessly attacked costs, eliminating 100 branches and cutting 3,000 jobs. He also closed down the bank’s European offices at a time when most banks were expanding their overseas networks.

Rather than taking advantage of banking deregulation, which was enticing other banks into all sorts of new financial ventures, Reichardt and Wells Fargo President Paul Hazen kept things simple and focused on California. Reichardt and Hazen beefed up Wells Fargo’s retail network through improved services such as an extensive automatic teller machine network, and through active marketing of those services.

In 1986, Wells Fargo purchased rival Crocker National Corporation from Britain’s Midland Bank for about $1.1 billion. The acquisition was touted as a brilliant maneuver by Wells Fargo. Not only did Wells Fargo double its branch network in southern California and increase its consumer loan portfolio by 85 percent, but the bank did it at an unheard of price, paying about 127 percent of book value at a time when American banks were generally going for 190 percent. In addition, Midland kept about $3.5 billion in loans of dubious value.

Crocker doubled the strength of Wells Fargo’s primary market, making Wells Fargo the tenth largest bank in the United States. Furthermore, the integration of Crocker’s operations into Wells Fargo’s went considerably smoother than expected. In the 18 months after the acquisition, 5,700 jobs were trimmed from the banks’ combined staff and costs were cut considerably.

Before and after the acquisition, Reichardt and Hazen aggressively cut costs and eliminated unprofitable portions of Wells Fargo’s business. During the three years before the acquisition, Wells Fargo sold its realty-services subsidiary, its residential-mortgage service operation, and its corporate trust and agency businesses. Over 70 domestic bank branches and 15 foreign branches were also closed during this period. In 1987, Wells Fargo set aside large reserves to cover potential losses on its Latin American loans, most notably to Brazil and Mexico. This caused its net income to drop sharply, but by mid-1989 the bank had sold or written off all of its medium- and long-term Third World debt.

Concentrating on California was a very successful strategy for Wells Fargo. But after its acquisition of Barclays Bank of California in May 1988, few targets remained. One region Wells Fargo considered expanding into in the late 1980s was Texas, where it made an unsuccessful bid for Dallas’s FirstRepublic Corporation in 1988. In early 1989 Wells Fargo expanded into full-service brokerage and launched a joint venture with the Japanese company Nikko Securities called Wells Fargo Nikko Investment Advisors. Also in 1989, the company divested itself of its last international offices, further tightening its focus on domestic commercial and consumer banking activities.

1990s: Emergence of the New Wells Fargo from Combination of Wells Fargo, First Interstate, and Norwest

Wells Fargo & Company’s major subsidiary, Wells Fargo Bank, was still loaded with debt, including relatively risky real estate loans, in the late 1980s. However, the bank had greatly improved its loan-loss ratio since the early 1980s. Furthermore, Wells continued to improve its health and to thrive during the early 1990s under the direction of Reichardt and Hazen. Much of that growth was attributable to gains in the California market. Indeed, despite an ailing regional economy during the early 1990s, Wells Fargo posted healthy gains in that core market. Wells slashed its labor force—by more than 500 workers in 1993 alone—and boosted cash flow with technical innovations. The bank began selling stamps through its ATMs, for example, and in 1995 was partnering with CyberCash, a software startup company, to begin offering its services over the Internet.

After dipping in 1991, Wells’s net income surged to $283 million in 1992 before climbing briskly to $841 million in 1994. At the end of 1994, after 12 years of service during which Wells Fargo & Co. investors enjoyed a 1,781 percent return, Reichardt stepped aside as head of the company. He was succeeded by Hazen. Wells Fargo Bank entered 1995 as the second largest bank in California and the seventh largest in the United States, with $51 billion in assets. Under Hazen, the bank continued to improve its loan portfolio, boost service offerings, and cut operating costs. During 1995 Wells Fargo Nikko Investment Advisors was sold to Barclays PLC for $440 million.

Late in 1995 Wells Fargo began pursuing a hostile takeover of First Interstate Bancorp, a Los Angeles-based bank holding company with $58 billion in assets and 1,133 offices in California and 12 other western states. Wells Fargo had long been interested in acquiring First Interstate, whose origins began with the founding in 1904 of the Bank of Italy in San Francisco by A.P. Giannini. After expanding his empire to the financial center of New York but being blocked from consolidating his various financial ventures, Giannini in 1928 formed a holding company, the Transamerica Corporation, which began business with $1.1 billion in assets and both banking and nonbanking activities. From the 1930s through the mid-1950s, Transamerica made a number of acquisitions of banks and other financial corporations throughout the western United States, creating the framework for the later First Interstate system.

The Bank Holding Company Act of 1956 placed new restrictions on companies such as Transamerica. Therefore, in 1957, Transamerica’s banking operations, which included 23 banks in 11 western states, were spun off as Firstamerica Corporation. Transamerica pursued its insurance and other operations. Firstamerica changed its name to Western Bancorporation in 1961. Western expanded steadily in the 1960s, both domestically and overseas, ending the decade with assets of more than $10 billion. The bank’s financial services network grew through the 1974 founding of the Western Bancorporation Mortgage Company and the 1979 formation of Western Bancorp Venture Capital Company.

In June 1981 the company changed its name to First Interstate Bancorp. The First Interstate name became a systemwide brand for most of the company’s banks, thus promoting greater public recognition of the company and internal consistency. During the 1980s, in addition to acquiring more banks, First Interstate jumped into new areas of financial services as the deregulation of the banking industry progressed. In 1983 the First Interstate Discount Brokerage was set up to provide bank customers with securities and commodities support. In 1984 the bank branched into merchant banking with the purchase of Continental Illinois Ltd. and equipment leasing with the acquisition of the Commercial Alliance Corporation of New York; and broadened its mortgage banking activities by acquiring the Republic Realty Mortgage Corporation. In 1986 and 1987, First Interstate made a bold $3.2 billion attempt to hostilely take over the ailing Bank of America, but the bid was successfully defeated.

First Interstate ran into its own troubles in the late 1980s and early 1990s stemming from bad real estate loans and the severe recession in California. The bank posted losses in the hundreds of millions for 1987, 1989, and 1991. Consequently, First Interstate concentrated on rebuilding and rejuvenating its existing operations rather than acquiring new ones. A number of noncore unprofitable subsidiaries were jettisoned, including the equipment leasing unit, a government securities operation, and most of the wholesale banking unit. Rumors of a takeover of First Interstate were rife in the early 1990s before the bank recovered fully by mid-decade under the leadership of Joe Pinola and William Siart.

Despite First Interstate’s healthier condition, and with the banking industry consolidation in full swing, Wells Fargo made a hostile bid for First Interstate in October 1995 initially valued at $10.8 billion. Other banks came forward as potential “white knights,” including Norwest, Bank One Corporation, and First Bank System. The latter made a serious bid for First Interstate, with the two banks reaching a formal merger agreement in November valued initially at $10.3 billion. But First Bank ran into regulatory difficulties with the way it had structured its offer and was forced to bow out of the takeover battle in mid-January 1996. Talks between Wells Fargo and First Interstate then led within days to a merger agreement. When completed in April 1996, following an antitrust review that stipulated the selling off of 61 bank branches in California, the acquisition was valued at $11.3 billion. The newly enlarged Wells Fargo had assets of about $116 billion, loans of $72 billion, and deposits of $89 billion. It ranked as the ninth largest bank in the United States.

Wells Fargo aimed to generate $800 million in annual operational savings out of the combined bank within 18 months, and immediately upon completion of the takeover announced a workforce reduction of 16 percent, or 7,200 positions, by the end of 1996. The merger, however, quickly turned disastrous as efforts to consolidate operations, which were placed on an ambitious timetable, led to major problems. Computer system glitches led to lost customer deposits and bounced checks. Branch closures led to long lines at the remaining branches. There was also a culture clash before the two banks and their customers. Wells Fargo had been at the forefront of high-tech banking, emphasizing ATMs and online banking, as well as the small-staffed supermarket “branches,” at the expense of traditional branch banking. By contrast, First Interstate had emphasized personalized relationship banking, and its customers were used to dealing with tellers and bankers not machines. This led to a mass exodus of First Interstate management talent and to the alienation of numerous customers, many of whom took their banking business elsewhere.

The financial performance of Wells Fargo, as well as its stock price, suffered from this botched merger, leaving the bank vulnerable to being taken over itself as banking consolidation continued unabated. This time, Wells Fargo entered into a friendly merger agreement with Norwest, which was announced in June 1998. The deal was completed in November of that year and was valued at $31.7 billion, with Norwest acquiring Wells Fargo and then changing its own name to Wells Fargo & Company because of the latter’s greater public recognition and the former’s regional connotations. Norwest also agreed to relocate the headquarters of the new Wells Fargo to San Francisco based on the bank’s $54 billion in deposits in California versus $13 billion in Minnesota. The head of Wells Fargo, Paul Hazen, was named chairman of the new company, while the head of Norwest, Richard Kovacevich, became president and CEO. The new Wells Fargo started off as the nation’s seventh largest bank with $196 billion in assets, $130 billion in deposits, and 15 million retail banking, finance, and mortgage customers. The banking operation included more than 2,850 branches in 21 states from Ohio to California. Norwest Mortgage had 824 offices in 50 states, while Norwest Financial had nearly 1,350 offices in 47 states, ten provinces of Canada, the Caribbean, Latin America, and elsewhere.

The integration of Norwest and Wells Fargo proceeded much more smoothly than the combination of Wells Fargo and First Interstate. A key reason was that the process was allowed to progress at a much slower and more manageable pace than that of the earlier merger. The plan allowed for two to three years to complete the integration, while the cost-cutting goal was a more modest $650 million in annual savings within three years. Rather than the mass layoffs that were typical of many mergers, Wells Fargo announced a workforce reduction of only 4,000 to 5,000 employees over a two-year period.

Continuing the Norwest tradition of making numerous smaller acquisitions each year, Wells Fargo acquired 13 companies during 1999 with total assets of $2.4 billion. The largest of these was the February purchase of Brownsville, Texas-based Mercantile Financial Enterprises, Inc., which had $779 million in assets. The acquisition pace picked up in 2000 with Wells Fargo expanding its retail banking into two more states: Michigan, through the buyout of Michigan Financial Corporation ($975 million in assets), and Alaska, through the purchase of National Bancorp of Alaska Inc. ($3 billion in assets). Wells Fargo also acquired First Commerce Bancshares, Inc. of Lincoln, Nebraska, which had $2.9 billion in assets, and a Seattle-based regional brokerage firm, Ragen MacKenzie Group Incorporated. In October 2000 Wells Fargo made its largest deal since the Norwest-Wells Fargo merger when it paid nearly $3 billion in stock for First Security Corporation, a $23 billion bank holding company based in Salt Lake City, Utah, and operating in seven western states. Wells Fargo thereby became the largest banking franchise in terms of deposits in New Mexico, Nevada, Idaho, and Utah; as well as the largest banking franchise in the West overall.

Following completion of the First Security acquisition, Wells Fargo had total assets of $263 billion. Its strategy echoed that of the old Norwest: making selective acquisitions and pursuing cross-selling of an ever-wider array of credit and investment products to its vast customer base. Under Kovacevich’s leadership, Wells Fargo was posting smart growth in revenues and profits and was the envy of the banking industry for the smooth way in which it had completed the Norwest-Wells Fargo merger as well as its knack for integrating smaller banks. Although there was speculation that the next “stage” for Wells Fargo might involve a major merger with an eastern bank that would create a nationwide retail bank or a merger that would bring the bank one of the two other things it did not have—a global presence and a large investment banking arm—Kovacevich seemed content with the concentration on western U.S. banking and the broader finance and mortgage operations. Wells Fargo was more profitable than most of the “megabanks” that had formed in the 1990s, with the reason perhaps lying in its more modest ambitions.

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Wells Fargo & Company is a multibillion–dollar regional bank holding company, the second largest in California and the seventh largest in the United States in 1995. Wells traces its origins to a banking and express business formed in 1852 to exploit the economic opportunities created by the California gold rush. Throughout its colorful history, the company has provided innovative services to its customers and has demonstrated an ability to weather economic conditions that have ruined its competitors.

Soon after gold was discovered in early 1848 at Sutler’s Mill near Comona, California, financiers and entrepreneurs from all over North America and the world flocked to California, drawn by the promise of huge profits. Vermont native Henry Wells and New Yorker William G. Fargo watched the California boom economy with keen interest. Before either Wells or Fargo could pursue opportunities offered in the West, however, they had business to attend to in the East. Wells, founder of Wells and Company, and Fargo, a partner in Livingston, Fargo and Company, were major figures in the young and fiercely competitive express industry. In 1849 a new rival, John Butterfield, founder of Butterfield, Wasson & Company, entered the express business. Butterfield, Wells, and Fargo soon realized that their competition was destructive and wasteful, and in 1850 they decided to join forces to form the American Express Company.

Soon after the new company was formed, Wells, the first president of American Express, and Fargo, its vice–president, proposed expanding their business to California. Fearing that American Express’s most powerful rival, Adams and Company (later renamed Adams Express Company), would acquire a monopoly in the West, the majority of the American Express Company’s directors balked. Undaunted, Wells and Fargo decided to start their own business while continuing to fulfill their responsibilities as officers and directors of American Express.

On March 18, 1852, they organized Wells, Fargo & Company, a joint–stock association with an initial capitalization of $300,000, to provide express and banking services to California. Financier Edwin B. Morgan was appointed Wells Fargo’s first president. The company opened its first office, in San Francisco, in July, 1852. The immediate challenge facing Morgan and Danforth N. Barney, who became president in 1853, was to establish the company in two highly competitive fields under conditions of rapid growth and unpredictable change. At the time, California regulated neither the banking nor the express industry, so both fields were wide open. Anyone with a wagon and team of horses could open an express company and all it took to open a bank was a safe and a room to keep it in. Because of its late entry into the California market, Wells Fargo faced well established competition in both fields.

From the beginning, the fledgling company offered diverse and mutually supportive services: general forwarding and commissions; buying and selling of gold dust, bullion, and specie; and freight service between New York and California. Under Morgan’s and Barney’s direction, express and banking offices were quickly established in key communities bordering the gold fields and a network of freight and messenger routes was soon in place throughout California. Barney’s policy of subcontracting express services to established companies, rather than duplicating existing services, was a key factor in Wells Fargo’s early success.

In 1855, Wells Fargo faced its first crisis when the California banking system collapsed as a result of overspeculation. A run on Page, Bacon & Company, a San Francisco bank, began when the collapse of its St. Louis, Missouri, parent was made public. The run soon spread to other major financial institutions, all of which, including Wells Fargo, were forced to close their doors. The following Tuesday Wells Fargo reopened in sound condition, despite a loss of one–third of its net worth. Wells Fargo was one of the few financial and express companies to survive the panic, partly because it kept sufficient assets on hand to meet customers’ demands rather than transferring all its assets to New York.

Surviving the Panic of 1855 gave Wells Fargo two advantages. First, it faced virtually no competition in the banking and express business in California after the crisis; second, Wells Fargo attained a reputation for dependability and soundness. From 1855 through 1866, Wells Fargo expanded rapidly, becoming the West’s all–purpose business, communications, and transportation agent. Under Barney’s direction, the company developed its own stagecoach business, helped start and then took over the Overland Mail Company, and participated in the Pony Express. This period culminated with the “grand consolidation” of 1866 when Wells Fargo consolidated under its own name the ownership and operation of the entire overland mail route from the Missouri River to the Pacific Ocean and many stagecoach lines in the western states.

In its early days, Wells Fargo participated in the staging business to support its banking and express businesses. But the character of Wells Fargo’s participation changed when it helped start the Overland Mail Company. Overland Mail was organized in 1857 by men with substantial interests in four of the leading express companies—American Express, United States Express, Adams Express, and Wells Fargo. John Butterfield, the third founder of American Express, was made Overland Mail’s president. In 1858, Overland Mail was awarded a government contract to carry the U.S. mail over the southern overland route from St. Louis to California. From the beginning, Wells Fargo was Overland Mail’s banker and primary lender.

In 1859 there was a crisis when Congress failed to pass the annual post office appropriation bill and left the post office with no way to pay for the Overland Mail Company’s services. As Overland Mail’s indebtedness to Wells Fargo climbed, Wells Fargo became increasingly disenchanted with Butterfield’s management strategy. In March, 1860 Wells Fargo threatened to foreclose. As a compromise. Butterfield resigned as president of Overland Mail and control of the company passed to Wells Fargo. Wells Fargo, however, did not acquire ownership of the company until the consolidation of 1866.

Wells Fargo’s involvement in Overland Mail led to its participation in the Pony Express in the last six of the express’s 18 months of existence. Russell, Majors & Waddell launched the privately owned and operated Pony Express. By the end of 1860, the Pony Express was in deep financial trouble; its fees did not cover its costs and, without government subsidies and lucrative mail contracts, it could not make up the difference. After Overland Mail, by then controlled by Wells Fargo, was awarded a $1 million government contract in early 1861 to provide daily mail service over a central route (the Civil War had forced the discontinuation of the southern line), Wells Fargo took over the western portion of the Pony Express route from Salt Lake City to San Francisco. Russell, Majors & Waddell continued to operate the eastern leg from Salt Lake City to St. Joseph, Missouri, under subcontract.

The Pony Express ended when transcontinental telegraph lines were completed in late 1861. Overland mail and express services were continued, however, by the coordinated efforts of several companies. From 1862 to 1865 Wells Fargo operated a private express line between San Francisco and Virginia City, Nevada; Overland Mail stagecoaches covered the route from Carson City, Nevada, to Salt Lake City; and Ben Holladay, who had acquired Russell, Majors & Waddell, ran a stagecoach line from Salt Lake City to Missouri.

By 1866, Holladay had built a staging empire with lines in eight western states and was challenging Wells Fargo’s supremacy in the West. A showdown between the two transportation giants in late 1866 resulted in Wells Fargo’s purchase of Holladay’s operations. The “grand consolidation” spawned a new enterprise that operated under the Wells Fargo name and combined the Wells Fargo, Holladay, and Overland Mail lines and became the undisputed stagecoach leader. Barney resigned as president of Wells Fargo to devote more time to his own business, the United States Express Company; Louis McLane, Wells Fargo’s general manager in California, replaced him.

The Wells Fargo stagecoach empire was short lived. McLane had reached an agreement with a railroad group that failed. Although the Central Pacific Railroad, already operating over the Sierra Mountains to Reno, Nevada, carried Wells Fargo’s express, the company did not have an exclusive contract. Moreover, the Union Pacific Railroad was encroaching on the territory served by Wells Fargo stagelines. Ashbel H. Barney, Dan–forth Barney’s brother and cofounder of United States Express Company, replaced McLane as president in 1868. The transcontinental railroad was completed in the following year, causing the stage business to dwindle and Wells Fargo’s stock to fall.

Central Pacific promoters, led by Lloyd Tevis, organized the Pacific Express Company to compete with Wells Fargo. The Tevis group also started buying up Wells Fargo stock at its sharply reduced price. In October, 1869 William Fargo, his brother Charles, and Ashbel Barney traveled to Omaha, Nebraska, to confer with Tevis and his associates. There Wells Fargo agreed to buy the Pacific Express Company at a much–inflated price and received exclusive express rights for ten years on the Central Pacific Railroad and a much–needed infusion of capital. All of this, however, came at a price: control of Wells Fargo shifted to Tevis.

Ashbel Barney resigned in 1870 and was replaced as president by William Fargo. In 1872 William Fargo also resigned to devote full time to his duties as president of American Express. Lloyd Tevis replaced Fargo as president of Wells Fargo, and the company expanded rapidly under his management. The number of banking and express offices grew from 436 in 1871 to 3,500 at the turn of the century. During this period, Wells Fargo also established the first transcontinental express line, using more than a dozen railroads. The company first gained access to the lucrative East Coast markets beginning in 1888; successfully promoted the use of refrigerated freight cars in California; had opened branch banks in Virginia City, Carson City, and Salt Lake City by 1876; and expanded its express services to Japan, Australia, Hong Kong, South America, Mexico, and Europe. In 1885 Wells Fargo also began selling money orders.

In 1905 Wells Fargo separated its banking and express operations. Edward H. Harriman, a prominent financier and dominant figure in the Southern Pacific and Union Pacific railroads, had gained control of Wells Fargo. Harriman reached an agreement with Isaias W. Hellman, a Los Angeles banker, to merge Wells Fargo’s bank with the Nevada National Bank, founded in 1875 by the Nevada silver moguls James G. Fair, James Flood, John Mackay, and William O’Brien to form the Wells Fargo Nevada National Bank.

Wells Fargo & Company Express had moved to New York City in 1904. In 1918 the government forced Wells Fargo Express to consolidate its domestic operations with those of the other major express companies. This wartime measure resulted in the formation of American Railway Express (later Railway Express Agency). Wells Fargo continued some overseas express operations until the 1960s.

The two years following the merger tested the newly reorganized bank’s, and Hellman’s, capacities. In April, 1906 the San Francisco earthquake and fire destroyed most of the city’s business district, including the Wells Fargo Nevada National
Bank building. The bank’s vaults and credit were left intact, however, and the bank committed its resources to restoring San Francisco. Money flowed into San Francisco from around the country to support rapid reconstruction of the city. As a result, the bank’s deposits increased dramatically, from $16 million to $35 million in 18 months.

The Panic of 1907, begun in New York in October, followed on the heels of this frenetic reconstruction period. The stock market had crashed in March. Several New York banks, deeply involved in efforts to manipulate the market after the crash, experienced a run when speculators were unable to pay for stock they had purchased. The run quickly spread to other New York banks, which were forced to suspend payment, and then to Chicago and the rest of the country. Wells Fargo lost $1 million in deposits a week for six weeks in a row. The years following the panic were committed to a slow and painstaking recovery.

In 1920, Hellman was very briefly succeeded as president by his son, I. W. Hellman II, who was followed by Frederick L. Lipman. Lipman’s management strategy included both expansion and the conservative banking practices of his predecessors. In late 1923, Wells Fargo Nevada National Bank merged with the Union Trust Company, founded in 1893 by I. W. Hellman, to form the Wells Fargo Bank & Union Trust Company. The bank prospered during the 1920s and Lipman’s careful reinvestment of the bank’s earnings placed the bank in a good position to survive the Great Depression. Following the collapse of the banking system in 1933, the company was able to extend immediate and substantial help to its troubled correspondents.

The war years were prosperous and uneventful for Wells Fargo. In the 1950s, Wells Fargo President I. W. Hellman III, grandson of Isaias Hellman, began a modest expansion program, acquiring two San Francisco Bay–area banks and opening a small branch network around San Francisco. In 1954 the name of the bank was shortened to Wells Fargo Bank, to capitalize on frontier imagery and in preparation for further expansion.

In 1960, Hellman engineered the merger of Wells Fargo Bank with American Trust Company, a large northern California retail–banking system and the second–oldest financial institution in California, to form the Wells Fargo Bank American Trust Company, renamed Wells Fargo Bank again in 1962. This merger of California’s two oldest banks created the eleventh–largest banking institution in the United States. Following the merger, Wells Fargo’s involvement in international banking greatly accelerated. The company opened a Tokyo representative office and, eventually, additional branch offices in Seoul, Hong Kong, and Nassau, as well as representative offices in Mexico City, Sao Paulo, Caracas, Buenos Aires, and Singapore.

In November, 1966, Wells Fargo’s board of directors elected Richard P. Cooley president and CEO. At 42, Cooley was one of the youngest men to head a major bank. Stephen Chase, who planned to retire in January, 1968, became chairman. Cooley’s rise to the top had been a quick one. From a branch manager in 1960 he rose to become a senior vice–president in 1964, an executive vice–president in 1965 and in April, 1966 a director of the company. A year later Cooley enticed Ernest C. Arbuckle, the former dean of Stanford’s business school, to join Wells Fargo’s board as chairman.

In 1967 Wells Fargo, together with three other California banks, introduced a Master Charge card (now MasterCard) to its customers as part of its plan to challenge Bank of America in the consumer lending business. Initially 30,000 merchants participated in the plan. Credit cards would later prove a particularly profitable operation.

Cooley’s early strategic initiatives were in the direction of making Wells Fargo’s branch network statewide. The Federal Reserve had blocked the bank’s earlier attempts to acquire an established bank in southern California. As a result, Wells Fargo had to build its own branch system. This expansion was costly and depressed the bank’s earnings in the later 1960s. In 1968 Wells Fargo changed from a state to a federal banking charter, in part so that it could set up subsidiaries for businesses like equipment leasing and credit cards rather than having to create special divisions within the bank. The charter conversion was completed August 15, 1968. The bank successfully completed a number of acquisitions during 1968 as well. The Bank of Pasadena, First National Bank of Azusa, Azusa Valley Savings Bank, and Sonoma Mortgage Corporation were all integrated into Wells Fargo’s operations.

In 1969 Wells Fargo formed a holding company and purchased the rights to its own name from the American Express Corporation. Although the bank always had the right to use the name for banking, American Express had retained the right to use it for other financial services. Wells Fargo could now use its name in any area of financial services it chose (except the armored car trade—those rights had been sold to another company two years earlier).

Between 1970 and 1975 Wells Fargo’s domestic profits rose faster than those of any other U.S. bank. Wells Fargo’s loans to businesses increased dramatically after 1971. To meet the demand for credit, the bank frequently borrowed short–term from the Federal Reserve to lend at higher rates of interest to businesses and individuals.

In 1973 a tighter monetary policy made this arrangement less profitable, but Wells Fargo saw an opportunity in the new interest limits on passbook savings. When the allowable rate increased to five percent, Wells Fargo was the first to begin paying the higher rate. The bank attracted many new customers as a result, and within two years its market share of the retail savings trade increased more than two points, a substantial increase in California’s competitive banking climate. With its increased deposits, Wells Fargo was able to reduce its borrowings from the Federal Reserve, and the one–half percent premium it paid for deposits was more than made up for by the savings in interest payments. In 1975 the rest of the California banks instituted a 5 percent passbook savings rate, but they failed to recapture their market share.

In 1973, the bank made a number of key policy changes. Wells Fargo decided to go after the medium–sized corporate and consumer loan businesses, where interest rates were higher. Slowly Wells Fargo eliminated its excess debt, and by 1974 its balance sheet showed a much healthier bank. Under Carl Reichardt, who later became president of the bank, Wells Fargo’s real estate lending bolstered the bottom line. The bank focused on California’s
flourishing home and apartment mortgage business and left risky commercial developments to other banks.

While Wells Fargo’s domestic operations were making it the envy of competitors in the early 1970s, its international operations were less secure. The bank’s 25 percent holding in Allge–meine Deutsche Credit–Anstalt, a West German bank, cost Wells Fargo $4 million due to bad real estate loans. Another joint banking venture, the Western American Bank, which was formed in London in 1968 with several other American banks, was hard hit by the recession of 1974 and failed. Unfavorable exchange rates hit Wells Fargo for another $2 million in 1975. In response, the bank slowed its overseas expansion program and concentrated on developing overseas branches of its own rather than tying itself to the fortunes of other banks.

Wells Fargo’s investment services became a leader during the late 1970s. According to Institutional Investor, Wells Fargo garnered more new accounts from the 350 largest pension funds between 1975 and 1980 than any other money manager. The bank’s aggressive marketing of its services included seminars explaining modern portfolio theory. Wells Fargo’s early success, particularly with indexing—weighting investments to match the weightings of the Standard and Poor’s 500—brought many new clients aboard.

By the end of the 1970s Wells Fargo’s overall growth had slowed somewhat. Earnings were only up 12 percent in 1979 compared with an average of 19 percent between 1973 and 1978. In 1980 Richard Cooley, now chairman of the holding company, told Fortune,” It’s time to slow down. The last five years have created too great a strain on our capital, liquidity, and people.”

In 1981 the banking community was shocked by the news of a $21.3 million embezzlement scheme by a Wells Fargo employee, one of the largest embezzlements ever. L. Ben Lewis, an operations officer at Wells Fargo’s Beverly Drive branch, pleaded guilty to the charges. Lewis had routinely written phony debit and credit receipts to pad the accounts of his cronies and received a $300,000 cut in return.

The early 1980s saw a sharp decline in Wells Fargo’s performance. Richard Cooley announced the bank’s plan to scale down its operations overseas and concentrate on the California market. In January of 1983, Carl Reichardt became chairman and CEO of the holding company and of Wells Fargo Bank. Cooley, who had led the bank since the late 1960s, left to revive a troubled rival. Reichardt relentlessly attacked costs, eliminating 100 branches and cutting 3,000 jobs. He also closed down the bank’s European offices at a time when most banks were expanding their overseas networks.

Rather than taking advantage of banking deregulation, which was enticing other banks into all sorts of new financial ventures, Reichardt and Wells Fargo President Paul Hazen kept things simple and focused on California. Reichardt and Hazen beefed up Wells Fargo’s retail network through improved services like an extensive automatic teller machine network, and through active marketing of those services.

In 1986, Wells Fargo purchased rival Crocker National Corporation from Britain’s Midland Bank for about $1.1 billion. The acquisition was touted as a brilliant maneuver by Wells Fargo. Not only did Wells Fargo double its branch network in southern California and increase its consumer loan portfolio by 85 percent, but the bank did it at an unheard of price, paying about 127 percent of book value at a time when American banks were generally going for 190 percent. In addition, Midland kept about $3.5 billion in loans of dubious value.

Crocker doubled the strength of Wells Fargo’s primary market, making Wells Fargo the tenth–largest bank in the United States. Furthermore, the integration of Crocker’s operations into Wells Fargo’s went considerably smoother than expected. In the 18 months after the acquisition, 5,700 jobs were trimmed from the banks’ combined staff and costs were cut considerably.

Before and after the acquisition, Reichardt and Hazen aggressively cut costs and eliminated unprofitable portions of Wells Fargo’s business. During the three years before the acquisition, Wells Fargo sold its realty–services subsidiary, its residential–mortgage service operation, and its corporate trust and agency businesses. Over 70 domestic bank branches and 15 foreign branches were also closed during this period. In 1987, Wells Fargo set aside large reserves to cover potential losses on its Latin American loans, most notably to Brazil and Mexico. This caused its net income to drop sharply, but by mid–1989 the bank had sold or written off all of its medium–and long–term Third World debt.

Concentrating on California was a very successful strategy for Wells Fargo. But after its acquisition of Barclays Bank of California in May of 1988, few targets remained. One region Wells Fargo considered expanding into in the late 1980s was Texas, where it made an unsuccessful bid for Dallas’s FirstRe–public Corporation in 1988. In early 1989 Wells Fargo expanded into full–service brokerage and launched a joint venture with the Japanese company Nikko Securities. Also in 1989, the company divested itself of its last international offices, further tightening its focus on domestic commercial and consumer banking activities.

Wells Fargo & Company’s major subsidiary, Wells Fargo Bank, was still loaded with debt, including relatively risky real estate loans, in the late 1980s. However, the bank had greatly improved its loan–loss ratio since the early 1980s. Furthermore, Wells continued to improve its health and to thrive during the early 1990s under the direction of Reichardt and Hazen. Much of that growth was attributable to gains in the California market. Indeed, despite an ailing regional economy during the early 1990s, Wells Fargo posted healthy gains in that core market. Wells slashed its labor force—by more than 500 workers in 1993 alone—and boosted cash flow with technical innovations. The bank began selling stamps through its ATM machines, for example, and in 1995 was partnering with CyberCash, a software startup company, to begin offering its services over the Internet.

After dipping in 1991, Wells’ net income surged to $283 million in 1992 before climbing briskly to $841 million in 1994. At the end of 1994, after 12 years of service during which Wells Fargo & Co. investors enjoyed a 1,781 percent return, Reichardt stepped aside as head of the company. He was succeeded by Hazen. Wells Fargo Bank entered 1995 as the second largest
bank in California and the seventh largest in the United States. Under Hazen, the bank continued to improve its loan portfolio, boost service offerings, and cut operating costs, suggesting a bright long–term future for one of California’s oldest financial institutions.

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Wells Fargo & Company

Wells Fargo & Company

Public CompanyIncorporated: 1968Employees: 19,700Assets: $46.62 billionStock Index: New York Pacific London Frankfurt

Wells Fargo & Company, a multibillion-dollar regional bank holding company, traces its earliest origins to a banking and express business formed in 1852 to exploit the economic opportunities created by the California gold rush. Throughout its colorful history, the company has provided innovative services to its customers and has demonstrated an ability to weather economic conditions that have ruined its competitors.

Soon after gold was discovered in early 1848 at Sutler’s Mill near Comona, California, financiers and entrepreneurs from all over North America and the world flocked to California, drawn by the promise of huge profits. Vermont native Henry Wells and New Yorker William G. Fargo watched the California boom economy with keen interest.

Before either Wells or Fargo could pursue opportunities offered in the West, however, they had business to attend to in the East. Wells, founder of Wells and Company, and Fargo, a partner in Livingston, Fargo and Company, were major figures in the young and fiercely competitive express industry. In 1849 a new rival, John Butterfield, founder of Butterfield, Wasson & Company, entered the express business. Butterfield, Wells, and Fargo soon realized that their competition was destructive and wasteful, and in 1850 they decided to join forces to form the American Express Company.

Soon after the new company was formed, Wells, the first president of American Express, and Fargo, its vice president, proposed expanding its business to California. Fearing that American Express’s most powerful rival, Adams and Company (later renamed Adams Express Company), would acquire a monopoly in the West, the majority of the American Express Company’s directors balked. Undaunted, Wells and Fargo decided to start their own business while continuing to fulfill their responsibilities as officers and directors of American Express.

On March 18,1852 they organized Wells, Fargo & Company, a joint-stock association with an initial capitalization of $300,000, to provide express and banking services to California. Financier Edwin B. Morgan was appointed Wells Fargo’s first president.

The company opened its first office, in San Francisco, in July, 1852. The immediate challenge facing Morgan and Danforth N. Barney, who became president in 1853, was to establish the company in two highly competitive fields under conditions of rapid growth and unpredictable change. At the time, California did not regulate either the banking or the express industry, so both fields were wide open. Anyone with a wagon and team of horses could open an express company and all it took to open a bank was a safe and a room to keep it in. Because of its late entry into the California market, Wells Fargo faced well established competition in both fields.

From the beginning, the fledgling company offered diverse and mutually supportive services: general forwarding and commissions; buying and selling gold dust, bullion, and specie; and freight service between New York and California. Under Morgan’s and Barney’s direction, express and banking offices were quickly established in key communities bordering the gold fields and a network of freight and messenger routes was soon in place throughout California. Barney’s policy of subcontracting express services to established companies, rather than duplicating existing services, was a key factor in Wells Fargo’s early success.

In 1855, Wells Fargo faced its first crisis when the California banking system collapsed as a result of over-speculation. A run on Page, Bacon & Company, a San Francisco bank, began when the collapse of its St. Louis, Missouri parent was made public. The run soon spread to other major financial institutions, all of which, including Wells Fargo, were forced to close their doors. The following Tuesday Wells Fargo reopened in sound condition, despite a loss of one-third of its net worth. Wells Fargo was one of the few financial and express companies to survive the panic, partly because it kept sufficient assets on hand to meet customers’ demands rather than transferring all its assets to New York.

Surviving the Panic of 1855 gave Wells Fargo two advantages. First, afterward it faced virtually no competition in the banking and express business in California; second, Wells Fargo attained a reputation for dependability and soundness.

From 1855 through 1866, Wells Fargo expanded rapidly, becoming the West’s all-purpose business, communications, and transportation agent. Under Barney’s direction, the company developed its own stagecoach business, helped start and then took over the Overland Mail Company, and participated in the Pony Express. This period culminated with the “grand consolidation” of 1866 when Wells Fargo consolidated under its own name the ownership and operation of the entire overland mail route from the Missouri River to the Pacific Ocean and many stagecoach lines in the western states.

In its early days, Wells Fargo participated in the staging business to support its banking and express businesses. But the character of Wells Fargo’s participation changed when it helped start the Overland Mail Company. Overland Mail was organized in 1857 by men with substantial interests in four of the leading express companies—American Express, United States Express, Adams Express, and Wells Fargo. John Butterfield, the third founder of American Express, was made Overland Mail’s president. In 1858, Overland Mail was awarded a government contract to carry the U.S. mail over the southern overland route from St. Louis to California. From the beginning, Wells Fargo was Overland Mail’s banker and primary lender.

In 1859 there was a crisis when Congress failed to pass the annual post office appropriation bill and left the post office with no way to pay for the Overland Mail Company’s services. As Overland Mail’s indebtedness to Wells Fargo climbed, Wells Fargo became increasingly disenchanted with Butterfield’s management strategy.

In March, 1860 Wells Fargo threatened to foreclose. As a compromise, Butterfield resigned as president of Overland Mail and control of the company passed to Wells Fargo. Wells Fargo, however, did not acquire ownership of the company until the consolidation of 1866.

Wells Fargo’s involvement in Overland Mail led to its participation in the Pony Express in the last six of the express’s 18 months of existence. Russell, Majors & Waddell launched the privately owned and operated Pony Express. By the end of 1860, the Pony Express was in deep financial trouble; its fees did not cover its costs and, without government subsidies and lucrative mail contracts, it could not make up the difference. After Overland Mail, by then controlled by Wells Fargo, was awarded a $1 million government contract in early 1861 to provide daily mail service over a central route (the Civil War had forced the discontinuation of the southern line), Wells Fargo took over the western portion of the Pony Express route from Salt Lake City to San Francisco. Russell, Majors & Waddell continued to operate the eastern leg from Salt Lake City to St. Joseph, Missouri under subcontract.

The Pony Express ended when transcontinental telegraph lines were completed in late 1861. Overland mail and express service was continued, however, by the coordinated efforts of several companies. From 1862 to 1865 Wells Fargo operated a private express line between San Francisco and Virginia City, Nevada; Overland Mail stagecoaches covered the route from Carson City, Nevada to Salt Lake City; and Ben Holladay, who had acquired Russell, Majors & Waddell, ran a stagecoach line from Salt Lake City to Missouri.

By 1866, Holladay had built a staging empire with lines in eight western states and was challenging Wells Fargo’s supremacy in the West. A showdown between the two transportation giants in late 1866 resulted in Wells Fargo’s purchase of Holladay’s operations. The “grand consolidation” spawned a new enterprise that operated under the Wells Fargo name and combined the Wells Fargo, Holladay, and Overland Mail lines and became the undisputed stagecoach leader. Barney resigned as president of Wells Fargo to devote more time to his own business, the United States Express Company; Louis McLane, Wells Fargo’s general manager in California, replaced him.

The Wells Fargo stagecoach empire was short lived. McLane had reached an agreement with a railroad group that failed. Although the Central Pacific Railroad, already operating over the Sierra Mountains to Reno, Nevada carried Wells Fargo’s express, the company did not have an exclusive contract. Moreover, the Union Pacific Railroad was encroaching on the territory served by Wells Fargo stagelines. Ashbel H. Barney, Danforth Barney’s brother and cofounder of United States Express Company, replaced McLane as president in 1868. The transcontinental railroad was completed in the following year, causing the stage business to dwindle and Wells Fargo’s stock to fall.

Central Pacific promoters, led by Lloyd Tevis, organized the Pacific Express Company to compete with Wells Fargo. The Tevis group also started buying up Wells Fargo stock at its sharply reduced price. In October, 1869 William Fargo, his brother Charles, and Ashbel Barney traveled to Omaha, Nebraska to confer with Tevis and his associates. There Wells Fargo agreed to buy the Pacific Express Company at a much-inflated price and received exclusive express rights for ten years on the Central Pacific Railroad and a much-needed infusion of capital. All of this, however, came at a price: control of Wells Fargo shifted to Tevis.

Ashbel Barney resigned in 1870 and was replaced as president by William Fargo. In 1872 William Fargo also resigned, to devote full time to his duties as president of American Express (he had been appointed its second president on Henry Wells’ retirement in 1868). Lloyd Tevis replaced Fargo as president of Wells Fargo.

The company expanded rapidly under Tevis’ management. The number of banking and express offices grew from 436 in 1871 to 3,500 at the turn of the century. During this period, Wells Fargo also established the first transcontinental express line, using more than a dozen railroads. The company first gained access to the lucrative East Coast markets beginning in 1888; successfully promoted the use of refrigerated freight cars in California; had opened branch banks in Virginia City, Carson City, and Salt Lake City by 1876; and expanded its express services to Japan, Australia, Hong Kong, South America, Mexico, and Europe. In 1885 Wells Fargo also began selling money orders.

In 1905 Wells Fargo separated its banking and express operations. Edward H. Harriman, a prominent financier and dominant figure in the Southern Pacific and Union Pacific railroads, had gained control of Wells Fargo. Harriman reached an agreement with Isaias W. Hellman, a Los Angeles banker, to merge Wells Fargo’s bank with the Nevada National Bank, founded in 1875 by the Nevada silver moguls James G. Fair, James Flood, John Mackay, and William O’Brien to form the Wells Fargo Nevada National Bank.

Wells Fargo & Company Express had moved to New York City in 1904. In 1918 the government forced Wells Fargo Express to consolidate its domestic operations with those of the other major express companies. This
wartime measure resulted in the formation of American Railway Express (later Railway Express Agency). Wells Fargo continued some overseas express operations until the 1960s.

The two years following the merger tested the newly reorganized bank’s, and Hellman’s, capacities. In April, 1906 the San Francisco earthquake and fire destroyed most of the city’s business district, including the Wells Fargo Nevada National Bank building. The bank’s vaults and credit were left intact, however, and the bank committed its resources to restoring San Francisco. Money flowed into San Francisco from around the country to support rapid reconstruction of the city. As a result, the bank’s deposits increased dramatically, from $16 million to $35 million in 18 months.

The Panic of 1907, begun in New York in October, followed on the heels of this frenetic reconstruction period. The stock market had crashed in March. Several New York banks, deeply involved in efforts to manipulate the market after the crash, experienced a run when speculators were unable to pay for stock they had purchased. The run quickly spread to other New York banks, which were forced to suspend payment, and then to Chicago and the rest of the country. Wells Fargo lost $1 million in deposits a week for six weeks in a row. The years following the panic were committed to a slow and painstaking recovery.

In 1920, Hellman was very briefly succeeded as president by his son, I. W. Hellman II, who was followed by Frederick L. Lipman. Lipman’s management strategy included both expansion and the conservative banking practices of his predecessors. In late 1923, Wells Fargo Nevada National Bank merged with the Union Trust Company, founded in 1893 by I. W. Hellman, to form the Wells Fargo Bank & Union Trust Company. The bank prospered during the 1920s and Lipman’s careful reinvestment of the bank’s earnings placed the bank in a good position to survive the Great Depression. Following the collapse of the banking system in 1933, the company was able to extend immediate and substantial help to its troubled correspondents.

The war years were prosperous and uneventful for Wells Fargo. In the 1950s, Wells Fargo President I. W. Hellman III, grandson of Isaias Hellman, began a modest expansion program, acquiring two San Francisco Bay-area banks and opening a small branch network around San Francisco. In 1954 the name of the bank was shortened to Wells Fargo Bank, to capitalize on frontier imagery and in preparation for further expansion.

In 1960, Hellman engineered the merger of Wells Fargo Bank with American Trust Company, a large northern California retail-banking system and the second-oldest financial institution in California, to form the Wells Fargo Bank American Trust Company, renamed Wells Fargo Bank again in 1962. This merger of California’s two oldest banks created the eleventh-largest banking institution in the United States.

Following the merger, Wells Fargo’s involvement in international banking greatly accelerated. The company opened a Tokyo representative office and, eventually, additional branch offices in Seoul, Hong Kong, and Nassau, as well as representative offices in Mexico City, São Paulo, Caracas, Buenos Aires, and Singapore.

In November, 1966, Wells Fargo’s board of directors elected Richard P. Cooley president and CEO. At 42, Cooley was one of the youngest men to head a major bank. Stephen Chase, who planned to retire in January, 1968, became chairman. Cooley’s rise to the top had been a quick one. From a branch manager in 1960 he rose to become a senior vice president in 1964, an executive vice president in 1965 and in April, 1966 a director of the company. A year later Cooley enticed Ernest C. Arbuckle, the former dean of Stanford’s business school, to join Wells Fargo’s board as chairman.

In 1967 Wells Fargo, together with three other California banks, introduced a Master Charge card (now MasterCard) to its customers as part of its plan to challenge Bank of America in the consumer lending business. Initially 30,000 merchants participated in the plan. Credit cards would later prove a particularly profitable operation.

Cooley’s early strategic initiatives were in the direction of making Wells Fargo’s branch network statewide. The Federal Reserve had blocked the bank’s earlier attempts to acquire an established bank in southern California. As a result, Wells Fargo had to build its own branch system. This expansion was costly and depressed the bank’s earnings in the later 1960s.

In 1968 Wells Fargo changed from a state to a federal banking charter, in part so that it could set up subsidiaries for business like equipment leasing and credit cards rather than having to create special divisions within the bank. The charter conversion was completed August 15, 1968.

The bank successfully completed a number of acquisitions during 1968 as well. The Bank of Pasadena, First National Bank of Azusa, Azusa Valley Savings Bank, and Sonoma Mortgage Corporation were all integrated into Wells Fargo’s operations.

In 1969 Wells Fargo formed a holding company and purchased the rights to its own name from the American Express Corporation. Although the bank always had the right to use the name for banking, American Express had retained the right to use it for other financial services. Wells Fargo could now use its name in any area of financial services it chose (except the armored car trade—those rights had been sold to another company two years earlier).

Between 1970 and 1975 Wells Fargo’s domestic profits rose faster than any other U.S. bank’s. Wells Fargo’s loans to businesses increased dramatically after 1971. To meet the demand for credit, the bank frequently borrowed short-term from the Federal Reserve to lend at higher rates of interest to businesses and individuals.

In 1973 a tighter monetary policy made this arrangement less profitable, but Wells Fargo saw an opportunity in the new interest limits on passbook savings. When the allowable rate increased to 5%, Wells Fargo was the first to begin paying the higher rate. The bank attracted many new customers as a result, and within two years its market share of the retail savings trade increased more than two points—a substantial increase in California’s competitive
banking climate. With its increased deposits, Wells Fargo was able to reduce its borrowings from the Federal Reserve, and the ½% premium it paid for deposits was more than made up for by the savings in interest payments. In 1975 the rest of the California banks instituted a 5% passbook savings rate, but they failed to recapture their market share.

In 1973, the bank made a number of key policy changes. Wells Fargo decided to go after the medium-sized corporate and consumer loan businesses, where interest rates were higher.

Slowly Wells Fargo eliminated its excess debt, and by 1974 its balance sheet showed a much healthier bank. Under Carl Reichardt, who later became president of the bank, Wells Fargo’s real estate lending bolstered the bottom line. The bank focused on California’s flourishing home and apartment mortgage business and left risky commercial developments to other banks.

While Wells Fargo’s domestic operations were making it the envy of competitors in the early 1970s, its international operations were less secure. The bank’s 25% holding in Allgemeine Deutsche Credit-Anstalt, a West German bank, cost Wells Fargo $4 million due to bad real estate loans. Another joint banking venture, the Western American Bank, which was formed in London in 1968 with several other American banks, was hard hit by the recession of 1974 and failed. Unfavorable exchange rates hit Wells Fargo for another $2 million in 1975. In response, the bank slowed its overseas expansion program and concentrated on developing overseas branches of its own rather than tying itself to the fortunes of other banks.

Wells Fargo’s investment services became a leader during the late 1970s. According to Institutional Investor, Wells Fargo garnered more new accounts from the 350 largest pension funds between 1975 and 1980 than any other money manager. The bank’s aggressive marketing of its services included seminars explaining modern portfolio theory. Wells Fargo’s early success, particularly with indexing—weighting investments to match the weightings of the Standard and Poor’s 500—brought many new clients aboard.

By the end of the 1970s Wells Fargo’s overall growth had slowed somewhat. Earnings were only up 12% in 1979 compared with an average of 19% between 1973 and 1978. In 1980 Richard Cooley, now chairman of the holding company, told Fortune,”it’s time to slow down. The last five years have created too great a strain on our capital, liquidity, and people.”

In 1981 the banking community was shocked by the news of a $21.3 million embezzlement scheme by a Wells Fargo employee, one of the largest embezzlements ever. L. Ben Lewis, an operations officer at Wells Fargo’s Beverly Drive branch, pleaded guilty to the charges. Lewis had routinely written phony debit and credit receipts to pad the accounts of his cronies and received a $300,000 cut in return.

The early 1980s saw a sharp decline in Wells Fargo’s performance. Richard Cooley announced the bank’s plan to scale down its operations overseas and concentrate on the California market. In January, 1983 Carl Reichardt became chairman and CEO of the holding company and of Wells Fargo Bank. Cooley, who had led the bank since the late 1960s, left to revive a troubled rival. Reichardt relentlessly attacked costs, eliminating 100 branches and cutting 3,000 jobs. He also closed down the bank’s European offices at a time when most banks were expanding their overseas networks.

Rather than taking advantage of banking deregulation, which was enticing other banks into all sorts of new financial ventures, Reichardt and Wells Fargo President Paul Hazen kept things simple and focused on California. Reichardt and Hazen beefed up Wells Fargo’s retail network through improved services like an extensive automatic teller machine network, and through active marketing of those services.

In 1986, Wells Fargo purchased its rival, the Crocker National Corporation, from Britain’s Midland Bank for about $1.1 billion. The acquisition was touted as a brilliant maneuver for Wells Fargo. Not only did the bank double its branch network in southern California and increase its consumer loan portfolio by 85%, but the bank did it at an unheard of price, paying about 127% of book value at a time when American banks were generally going for 190%. In addition, Midland kept about $3.5 billion in loans of dubious value.

Crocker doubled the strength of Wells Fargo’s primary market, making Wells Fargo the tenth-largest bank in the United States.

The integration of Crocker’s operations into Wells Fargo’s went considerably smoother than expected. In the 18 months after the acquisition, 5,700 jobs were trimmed from the banks’ combined staff and costs were cut considerably.

Before and after the acquisition, Reichardt and Hazen had also aggressively cut costs and elminated unprofitable portions of Wells Fargo’s business. During the three years before the acquisition, Wells Fargo sold its realty-services subsidiary, its residential-mortgage service operation, and its corporate trust and agency businesses. Over 70 domestic bank branches and 15 foreign branches were also closed during this period.

In 1987, Wells Fargo set aside large reserves to cover potential losses on its Latin American loans, most notably to Brazil and Mexico. This caused its net income to drop sharply, but by mid-1989 the bank had sold or written off all of its medium- and long-term Third World debt.

Concentrating on California has been a very successful strategy for Wells Fargo, but after its acquisition of Barclays Bank of California in May, 1988, few targets remain. One region Wells Fargo may try to expand into is Texas, where it made an unsuccessful bid for Dallas’ FirstRepublic Corporation in 1988. In early 1989 Wells Fargo expanded into full-service brokerage and launched a joint venture with the Japanese company Nikko Securities. Also in 1989, Wells Fargo divested itself of its last international offices, further tightening its focus on domestic commercial and consumer banking activities.

Although Wells Fargo’s loan portfolio is still loaded with leveraged debt and real estate loans that some consider risky, the bank has vastly improved its loan-loss ratio in recent years. Wells Fargo is unusual among major American banks in its decision not to invest in
international banking, but it has shown that it is an able competitor in the consumer and smaller-business market it has targeted.

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Wells, Fargo and Company

Dictionary of American History
COPYRIGHT 2003 The Gale Group Inc.

WELLS, FARGO AND COMPANY

WELLS, FARGO AND COMPANY. The founders of the American Express Company, Henry Wells, William G. Fargo, and associates, organized Wells, Fargo and Company in 1852 to function as a western ally of American Express. The two companies divided the continent approximately at the Mississippi and Missouri rivers. Wells, Fargo and Company installed ocean service between New York and San Francisco via Panama, erected a fine office building in San Francisco, and began to operate not only in the gold region of California but over the entire Pacific coast. In less than ten years, it had eliminated or acquired nearly all competitors and dominated the Far West. In remote mining camps where the mails had not yet penetrated, it was the chief letter carrier; even after the mails came, many preferred it as more dependable. The company spread rapidly through the entire Rocky Mountain region and carried far greater amounts of gold, silver, and bullion than any other agency. In 1861, after the famous Pony Express failed, Wells, Fargo acquired it and extended its operations to western Canada, Alaska, Mexico, the West Indies, Central America, and Hawaii, and for a short time even carried letters to China and Japan. Later, it pushed its service eastward to the Atlantic coast. Along with all the other expresses, Wells, Fargo and Company merged with the American Railway Express Company in 1918, but continued to function for more than thirty years as a separate corporation on fourteen thousand miles of railway in Mexico and Cuba. As a subsidiary of American Express, Wells, Fargo became an armored-car service.

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Wells, Fargo and Company

Gale Encyclopedia of U.S. Economic History
COPYRIGHT 2000 The Gale Group Inc.

WELLS, FARGO AND COMPANY

On the morning of January 24, 1848, a construction foreman working for California land baron John Sutter, discovered something shining in the bottom of a ditch. Though Sutter attempted to keep this discovery secret, word soon spread across the country that gold had been found in California. To meet the needs of the every increasing number of Gold Rush pioneers, Henry Wells, William G. Fargo, and other investors formed Wells, Fargo and Company. Initially the company provided three services: banking, expressing (high-speed delivery services), and mail delivery. Five years later, Wells, Fargo and Company added overland stagecoach services. From these humble, yet inspired, beginnings rose a financial giant.

Wells Fargo opened for business in San Francisco on July 13, 1852. The company's banking department, run by banker Reuben W. Washburn, purchased gold from transitory miners, paying for it with standard-issue gold coins and bills of exchange that could be shipped back east. The company provided extensive communications and shipping services as well. To support these new services offices were built in Sacramento and Placer County to express the gold. Wells Fargo also contracted small banking and express firms to service other areas.

In 1855 a bank crisis felled two of California's largest banking houses causing a financial crisis from which Wells Fargo emerged as the primary bank and express company in the California region. The company continued to expand and it soon had over sixty agencies on the West Coast. The 1860s confirmed the dynamic nature of Wells Fargo. The California economy had expanded to include not only placer mining (which extracts material from deposits by hand, dredging, or with hydraulic nozzles) but also agriculture, manufacturing, and hard rock mining; industries of this type required long-term investment. Wells Fargo survived this economic shift while their express and communications services expanded. In 1861 Wells Fargo's growing express service would take over the famed Pony Express, and in 1864 the company provided the first electronic transaction by telegraph.

In 1866 Wells Fargo purchased the Overland Mail and Express Company. This strategic move placed Wells Fargo in control of essentially all express services west of the Mississippi River. However, in 1869 the new transcontinental railroad effectively brought an end to Wells Fargo's stagecoach empire. However, the "iron horse" became a great asset to the company, because it allowed for faster express delivery. Utilizing this faster mode of transportation as well as the new, expanded economy, Wells Fargo began to market agricultural products nationally. The company became the first express company to provide ocean-to-ocean delivery service. Thanks to this service, the earnings of Wells, Fargo, and Company topped one million dollars annually from 1890 to 1892.

Even the economic panic of 1893 could not damage Wells Fargo's financial earnings. By 1899 company earnings were once again over one million dollars. Earnings increased to almost five million dollars by 1909, with profitability soaring to $27 million in that same year. Soon afterward express business for the company decreased because of railroad disruptions, competition from the U.S. Postal Service, and regulation brought about by the Interstate Commerce Commission. However, by July 1, 1918, Wells Fargo employed 35,000 people in 10,000 domestic offices. This considerable workforce was merged with the American Railway Express during World War I (1914-1918). The express division of Wells Fargo became a subsidiary of American Express, providing secured transportation of funds via armored cars.

The company's banking business merged with the Nevada National Bank in 1905. This move proved to be wise, as Wells Fargo maintained a strong banking presence throughout the Great Depression (1929-1939) and into the 1940s. The company continued to grow. This growth can be partially attributed to the dramatic increase in the population of California after World War II (1939-1945). However, it is easier to understand the company's expansion by taking a brief look at the many strategic mergers and purchases made by Wells Fargo from 1960s to the late 1990s. In 1960 it merged with the American Trust Company. In 1986 Wells Fargo's purchased Crocker National Corporation and Crocker Bank, increasing the company's assets by $19.2 billion. Other acquisitions in the 1980s included the personal trust business of the Bank of America (1987) and Barclays Bank of California (1988). A cooperative agreement with The Hong Kong and Shanghai Banking Corporation Limited in 1989 led to the establishment of the Wells Fargo HSBC Trade Bank.

Wells Fargo continued to grow ever larger and stronger throughout the 1990s. In 1990 alone the company acquired four California-based organizations: Valley National Bank, Central Pacific Corporation, Torrey Pines Group (totaling over $1.5 billion in assets), and Citizen Holdings (with $207 million in deposits). Wells Fargo merged with First Interstate Bankcorp in 1996. A merger with Norwest Corporation vaulted Wells Fargo to the seventh largest U.S. bank holding company in the United States with a total of $92.8 billion in assets as of September, 1998.

See also:Gold Rush of 1849

FURTHER READING

Beebe, Lucius. U.S. West: The Saga of Wells Fargo. New York: Dutton, 1949.

Dictionary of American History. New York: C. Scribner's Sons, 1976, s.v. "Wells Fargo."

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Wells, Fargo, & Co.

Wells, Fargo, & Co. a US transportation company founded in 1852 by the businessmen Henry Wells (1805–78) and William Fargo (1818–81) and others. It carried mail to and from the newly developed West, founded a San Francisco bank, and later ran a stagecoach service (having bought the Pony Express system) until the development of a transcontinental railway service.

Cite this article Pick a style below, and copy the text for your bibliography.

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